Coyote Blog

I have liquor licenses in about six different states, and like sales taxes, the process varies a lot by state.  But one universal impression I have is that the whole liquor licensing process has long ago ceased to serve its original purpose and has instead become either become captive to rent-seekers or has become a bureaucratic jobs program or both.  Al Capone died more than half a century ago.  And while one might argue there is some government interest in making sure minors don't buy the product and similar rules are followed, the liquor licensing process is orders of magnitude more complex and onerous than, say, getting a license to sell cigarettes or to prepare foods on site, both of which have similar features.

The liquor licensing process in most states was crafted in the 1930s, with the end of prohibition.  At that time, the primary concern was to keep out organized crime interests who had run the liquor business during prohibition.  So the process includes FBI background checks, as well as minute disclosure of every single person who has ever loaned you money, so they can be checked out to make sure you are in no way beholden to anyone who is a bad guy in the FBI computers.  The licenses take months to obtain (including a fingerprinting process) and cost thousands of dollars a year, presumably to offset the bureaucracy required to review all the applications.  Here in Arizona, minuscule errors, such as abbreviating "Boulevard" in an address to "Blvd" can cause the application to be rejected and have to be resubmitted.  Believe me, I know.

Worse than the ridiculous jobs-program-and-mindless-bureaucracy-fighting-a-threat-that-no-longer-exists problem is the way liquor licenses are now used in many locales for rent-seeking.  The worst offenders are states that purposefully artificially limit the number of liquor licenses.  This is quite obviously an incumbent protection program, protecting current liquor businesses from new competition.  California is one such state.  Even after I had purchased an existing license for a ridiculous amount of money ($5000 I think), I still had to make my case to the local county planning board who had final approval as to whether they would allow me a license into the county.  I asked them why this was necessary, and they were very up front about it (the following is paraphrased but accurate):

If we issue too many licenses, then it would be hard for you to make money.  We are really just helping you.

Sorry, but I don't need help.  I am willing to take the risk.  And does anyone really think that Shasta County California is looking after me, an out-of-state business just entering the area?  Of course not.  What they are really saying is "let us decide if all our buddies here in the county who we play golf with and who donate to our campaigns are OK with you competing with them."

In fact, this is exactly what happens in Lake Havasu City, AZ.  Though Arizona is not a state that limits liquor licenses, Lake Havasu required some kind of local board meeting to approve our license in that city.  The stated reason was that they wanted to make sure the new liquor business would not bring down the image of the city.  Which is hilarious, for anyone who has been to Lake Havasu City, particularly in spring break.  In fact, I am pretty sure it was an excuse for all the local interests to decide if they could tolerate another competitor or not.

All this comes to mind after I read this article by Radley Balko.  It is a good example of what can happen to you if your business depends on a government license and the local rent-seekers decide that your business needs to go.  A very brief excerpt:

I'll get into the
harassment, entrapment, and defamation Mr. Ruttenberg has endured in a
bit. For the moment, I'd like to focus on possible reasons for the
harassment. Why has this been going on for several years? I think there
are a few minor motivating factors. For one, I think there is,
unfortunately, some antisemitism at play. There's also a strange
rivalry Mr. Ruttenberg had with a Manassas Park police officer over a
girl. And I think part of this may be driven by city officials who for
whatever reason simply began to harbor a grudge against Ruttenberg.
Remember Milton Friedman's old axiom: Hell hath no fury like a bureaucrat scorned.

But I think something else is going on, here. And Black Velvet Bruce
Li has hit it. I believe there is some very strong circumstantial
evidence suggesting that Mr. Ruttenberg's bar was targeted by the city
of Manassas Park because the city had its eye on the property as a
possible site for an off-track betting facility for the Colonial Downs
horse racing track in New Kent County, Virgina.

Update:  I guess this is the day to blog about outdated 1930's liquor legislation.

When the Legislature wrote the first alcohol laws after
Prohibition was repealed in 1933, California defined what a beer is and
what wine is. The definition was simple"”anything added to beer or wine
renders it something else. Sometime thereafter beer and wine producers
started adding things such as preservatives, flavor enhancers and other
things. So narrowly reading the law there is NO such product as either
beer or wine sold in California today. Now common sense and alcohol
regulators know that is not true and so for years have ignored this
narrow interpretation.

Last week [on December 13] a bare
majority of the Board of Equalization voted for the narrow
interpretation of the law, and have begun the process to tax all
alcohols with any additives as distilled spirits. This will increase
the taxes charged on beers, wines, flavored malt beverages, and
flavored beers to the level on hard liquor.

The dated California
law defines beer as having no additives whatsoever. No beer that I know
of"” except perhaps some home brews"”meets this definition.

I have written a number of articles about the ridiculous subsidies paid to cotton growers in Arizona.  The AZ Republic has a semi-nostalgic look at the decline of cotton farming in the Valley, mainly due to the pressure of urban growth.  I say:  Good!  How have we tolerated a situation like this so long:

This year, Arizona farmers planted 215,000 acres of cotton, a 66
percent drop from the 633,000 acres in production in 1981, said Rick
Lavis, vice president of the Arizona Cotton Growers Association.

"I wish we could grow more and the prices were better," Lavis said.

Cotton averages 55 cents per pound, up from five years ago, Lavis said. But it costs 75 cents a pound to produce, he said.

"Doesn't sound very profitable, does it?" Lavis asked. "If the trend
lines tell us anything, it probably is continuing to be a diminishing
commodity because of urbanization and price. If you're not making back
the 72 cents to 75 cents a pound that it costs to produce it, cotton
growers may say, 'Gee, I need to grow something else.' "

A variety of federal subsidies, including guaranteed payments, price
supports and below-market loan rates, keep cotton profitable for
Arizona farmers, Lavis said. When cotton prices rise, subsidies
decline, he said.

You mean at some point when prices are 20 cents under the cost of production, farmers might eventually consider planting something else?  Duh.  Farmers, generally rational sorts, would have made this decision long ago if it weren't for the enormous federal subsidies mentioned in the last paragraph that keep cotton profitable.  And this underestimates the total subsidy, since farmers in Arizona (as well as Southern California) use millions of gallons of subsidized water, ofter priced below cost, usually priced below what we other citizens pay, and always priced below what a true market clearing price would be (which explains why Lake Powell is drying up).

In this post I list information on cotton subsidies -- over $100 million in Arizona just for cotton in 2003, and 2006 appears to be a worse year.  And notice the top three subsidy recipients are all Indian Tribes with very, very profitable casino operations.  These are not struggling family farms.  Most every one of these farmers on the top subsidy list are in cities (Goodyear & Queen Creek for example) that are right at the wavefront of Phoenix expansion and so probably sit on a fortune in real estate.  I am sure they are happy to have the USDA pay them a half million dollars a year so they can cover the carrying cost of their land until they find the right developer to buy it for millions.

Arizona has always lacked a managed snow play area.  In the past, when the snow first flies in Flagstaff, everyone in Phoenix would hop in the car and sled any place they could find, even some downright dangerous spots on Interstate overpasses. 

After a year of work, we have opened the Wing Mountain Snow Play Area, just north of Flagstaff, Arizona.  We have a huge, managed parking lot, portable bathrooms, and concessions which include hot chocolate and sled sales.  If you live in Arizona, come and visit us this winter.

Update:  I think the season is going well, and we have good snow.  We had an enormous number of visitors on Christmas day, more than we could ever have predicted, and I apologize if anyone was not able to get in and play.  However, that day was an anomaly, and most days we have plenty of space to park and play.

To the bathroom question, we only just got the permit to run this facility from the US Forest Service a few weeks ago, so yes the bathrooms are just porta-john types.  Once we have a little time with the facility, we will work for a more permanent solution.   However, last year before we took over the facility there was only Mother Nature.

[Note this post is a reprint from prior years]

This week is the anniversary of one of my favorite bits of Phoenix history.  Many people have seen the Steve McQueen movie "the Great Escape",
about a group of 60 or so prisoners who cleverly dug a tunnel out of a
German POW camp and escaped in various directions across Europe, many
of whom where eventually recaptured.

I don't know if such an event occurred in Europe, but an almost
identical real-life POW escape (tunnel and all) occurred right here in
Phoenix, Arizona almost exactly 60 years ago.

Like many isolated western towns in WWII, Phoenix played host to a
number of German POW's, in our case about 1700 in Papago Park.
Phoenix, and in particular Papago Park, with its arid climate and red rocks, must have been quite a culture shock to the Germans.

Anyway, I won't tell the whole story, but it is fascinating and you can read it all here.  A short excerpt:

The
German prisoners asked their guards for permission to create a
volleyball courtyard. Innocently obliging, the guards provided them
with digging tools. From that point on, two men were digging at all
times during night hours. A cart was rigged up to travel along tracks
to take the dirt out. The men stuffed the dirt in their pants pockets
which had holes in the bottoms, and they shuffled the dirt out along
the ground as they walked around. In addition, they flushed a huge
amount of dirt down the toilets. They labeled their escape route Der Faustball Tunnel (The Volleyball Tunnel).

They
dug a 178 foot tunnel with a diameter of 3 feet. The tunnel went 8 to
14 feet beneath the surface, under the two prison camp fences, a
drainage ditch and a road. The exit was near a power pole in a clump of
brush about 15 feet from the Cross Cut Canal. To disguise their plans,
the men built a square box, filled it with dirt and planted native
weeds in it for the lid to cover the exit. When the lid was on the
tunnel exit, the area looked like undisturbed desert.

There
is some dispute about how many people actually escaped -- official
records say 25.  Others argue that as many as 60 escaped, but since
only 25 were recaptured, 25 was used as the official number to cover up
the fact that German POW's might be roaming about Arizona.

The prisoners who led this escape were clearly daring and inventive,
but unfortunately in Arizona lore they are better known for their one
mistake.  Coming from wet Northern European climes, the prisoners
assumed that the "rivers" marked on their map would actually have
flowing water in them.  Their map showed what looked like the very
substantial Salt River flowing down to the Colorado River and eventual
escape in Mexico.  Unfortunately, the Salt River most of the year (at
least in the Phoenix area) is pretty much a really wide flat body of dirt.  The German expressions as they carried their stolen canoes up to its banks must have been priceless.

It
never occurred to the Germans that in dry Arizona a blue line marked
"river" on a map might be filled with water only occasionally. The
three men with the canoe were disappointed to find the Salt River bed
merely a mud bog from recent rains. Not to be discouraged, they carried
their canoe pieces twenty miles to the confluence with the Gila river,
only to find a series of large puddles. They sat on the river bank, put
their heads in their hands and cried out their frustration.

We
probably shouldn't make too much fun of these hapless U-boaters, living
in a land so far out of their experience:  Apparently the prison guards
made Sargent Schultz look like Sherlock Holmes:

Although
the men left in the wee hours of Christmas Eve, the camp officials were
blissfully unaware of anything amiss until the escapees began to show
up that evening. The first to return was an enlisted man, Herbert
Fuchs, who decided he had been cold, wet and hungry long enough by
Christmas Eve evening. Thinking about his dry, warm bed and hot meal
that the men in the prison camp were enjoying, he decided his attempt
at freedom had come to an end. The 22-year old U-boat crewman hitched a
ride on East Van Buren Street and asked the driver to take him to the
sheriff's office where he surrendered. Much to the surprise of the
officers at the camp, the sheriff called and told them he had a
prisoner who wanted to return to camp.

One
of the last to be re-captured was U-boat Commander Jürgen Wattenberg,
the leader of the breakout.  Interestingly, Captain Wattenberg hid out
in the hills just a few hundred yards from my current home.

It looks like my local and state governments are gearing up to take money from my business and give it to US Airways.  Because, you see, politicians don't have problems in elections if they lose a few anonymous small businesses, but they do feel vulnerable if their city loses a major corporate headquarters:

Metropolitan Phoenix has not faced losing such a significant hometown
company since America West Airlines went bankrupt in 1991.

"The decision will be driven by what's in the best interest of
the stakeholders, which includes the creditors, the shareholders and
our employees," said C.A. Howlett, US Airways' senior vice president of
public affairs.

Tempe may have the hometown advantage, but Atlanta will no doubt vigorously and publicly fight to capture the headquarters....

Valley lawmakers, business leaders and economic development officials,
who have been largely silent in public, are having informal, quiet
discussions with the airline. They say they want to keep the
headquarters local but disagree about how to accomplish that goal and
when to move forward with a plan.

"I don't think we're at a phase where we should be panicking," said
Darcy Renfro, Gov. Janet Napolitano's policy adviser on higher
education and economic development. "The governor is very engaged.
We've jumped on this as soon as we could to make sure that we are
ready."

Even as Napolitano and Phoenix Mayor Phil Gordon plan to meet with US
Airways CEO Doug Parker, possibly this week, some maintain it is too
early to devise a strategy.

Just great.  If they don't want to stay, let them go.  They can have Atlanta.  I have lived both places and wouldn't move from Arizona to Atlanta for any reason.  By the way, the Arizona politicians are downright subdued in their response vs. this craziness from Atlanta:

Atlanta Mayor Shirley Franklin opposes the merger and recently blasted US Airways' customer service in a column in the Atlanta Journal-Constitution.

What theory of government could possibly make it Ms. Franklin's job to opine about the relative merits of various private company's products in her official capacity as mayor?  Why does the Atlanta city government need to have an official position on a merger of two private companies?  The last time I remember public authorities vociferously opposing a merger, it was the Pennsylvania government trying to stop (successfully, in the end) the buyout of local company Amp by AlliedSignal.  And what did this achieve?  It allowed Amp to be bought by Tyco, which has been rocked by scandal.  Pennsylvania stockholders who ended up with Tyco rather than AlliedSignal (now Honeywell) stock were much worse off several years later, as were Amp employees who traded AlliedSignal for Tyco as their boss.

One of the reasons I like Arizona is that we actually have a pretty strong libertarian streak here, going back to Barry Goldwater and extending today with Congressman Jeff Flake.  So I must admit that this made me feel better, and is something you would hear from a politician in very few states:

"We would like to have that company here, but it will not make or break
Arizona. We have companies that are moving all the time," said Barrett
Marson, director of communications for the Arizona House of
Representatives. "We're growing by leaps and bounds. Arizona does not
have many headquarters, but it does just fine, thank you very much."

I have written about government subsidies of corporate relocations here and here, among many other places.

From our American point of view, we usually think of the attack by the Japanese at Pearl Harbor fifty-five 65 years ago as the main Japanese objective at the time.  In fact, the attack on Pearl Harbor was merely a screening move, an attempt by the Japanese to limit the US's ability to respond to its main objective -- seizure of resource-rich targets in Indonesia and Southeast Asia. 

The Japanese in 1941 shared many of the beliefs that are disturbingly common today.   They believed that their country had to be "self-sufficient" in key industries and resources.  And, they had a huge distrust of foreigners and international trade.  Lou Dobbs would have been very comfortable with them.  The end result of believing in self-sufficiency was that Japan eschewed peaceful trade as a way to gain resources in favor of colonialism and military intervention.  To some extent, the European colonialism of the 19th and early 20th centuries stemmed from the same beliefs.

As an island nation, Japan had developed a rich and complex social
structure. It resisted westernization by sealing itself off from
contact with the outside world, particularly Europe and the United
States. By the early twentieth century, though, Japan's efforts to
achieve self-sufficiency were failing, for the nation lacked its own
raw materials and other resources. Some members of the ruling class
argued that Japan could grow and prosper only by modernizing and
adopting Western technology. Japanese nationalists, though, advocated a
different path: the establishment of an empire that would not only
elevate Japan's stature in the eyes of the world but also guarantee
access to the resources the nation needed. Moreover, many members of
the nation's traditional warrior class"”the Samurai"”were embittered by
the aftermath of World War I. Japan had backed the victorious Allies,
but the Samurai believed that in the peace negotiations following the
war the United States and Great Britain had treated Japan as a
second-class nation. They, too, longed to assert Japan's place in world
affairs.   [answers.com]

After WWII, the Japanese gave up colonialism and military intervention in favor of arms-length trade.  And, as a result, grew through peaceful exchange into being the wealthy world power that militarism and "self-sufficiency" could never achieve.

Postscript: Some might argue that the Japanese were forced to give up on trade in favor of militarism by the US embargoes.  This is a particularly popular explanation among the "America-is-the-source-of-all-evil" academics, that the Japanese would have peacefully traded for all their needs if only we had let them.  This viewpoint is silly, and completely ignorant of the goals and philosophies of those running Japan.

The Japanese desire to be resource self-sufficient is always there, and the embargoes were a result of previous military adventures by the Japanese to gain colonies by force in Korea and China, as well as Japanese threats to invade southeast Asia.  Japanese militarism to achieve "imperial self-sufficiency" predated western embargoes by many, many years.  The western embargoes may have forced the Japanese hand to move quicker than they might have, but their moves into resource-rich Indonesia were probably coming soon anyway, just as similar moves in Korea and China had been going on for a decade.

To be fair, today's self-sufficiency advocates are passive and xenophobic rather than aggressive and xenophobic, as the Japanese were.  This is at least a small improvement, and means that they prefer to quietly sink into squalor rather than going out with a bang (two bangs?) as the Japanese did.

Update:  Memories of the Pearl Harbor attack.  And the Arizona Republic comes through with a good series on the death of the USS Arizona.

No state shall ... deny to any person within its jurisdiction the
equal protection of the laws  - 14th Amendment

The Arizona Republic had an article in the lead position on the business page that really got me fuming.  Here is the headline:

Bioscience push paying off.  But analysis says Arizona must do more

Apparently the Arizona and Phoenix governments decided several years ago it was their job to preferentially invest in getting biotech companies to move to Arizona.  And this article was about a consulting study the government engaged to see how they were doing against this original plan. 

Arizona's lucrative bet on the biosciences is yielding more high-wage
jobs, federal research dollars and new buildings that are expected to
birth scientific breakthroughs for decades to come.

But the state needs to accomplish a lot more to establish a thriving
research-based economy, particularly providing enough money, lab space
and support that will allow small research companies to grow and
prosper.

The study can be summarized as "The government spent lots of money.  Biotech jobs increased in Arizona, though we can't establish a link between the government spending and the job growth.  The government needs to spend even more money in the future."  These conclusions are from Battelle, a technology consulting company whose fortunes depend almost entirely on government spending for technology projects, and, magically, they came to the conclusion that government needs to spend a lot on technology projects.

Equal Protection

I seldom hear this argument about corporate welfare, but what the hell ever happened to the equal protection clause?  From the perspective of an Arizona corporation, my government is taxing me and every other business and handing our money over to businesses that call themselves "biotech."  What suddenly gives these other businesses such favored status?  Why is biotech somehow more desirable such that they are more equal under the law?   Or, for those of you on the Left who don't think businesses have equal protection rights, what about Arizona workers?  Why are workers in every other industry taxed so biotech workers can have more secure, higher paying jobs? 

The Worst Investor

Government is the worst investor.  I won't go into how bad they are historically at picking winners, but will make a different point this time.  Consider this hypothetical: 

You have some money to invest in real estate, and engage a consultant to invest your money for you.  The consultant comes back and says that he chose to invest in the most sought-after single property in town, where hundreds of other people were bidding against you for the project, but eventually you outbid them all and got it. 

What would be your reaction?  Mine would be rage and horror.  Why the hell did my consultant choose the project with the most competition, so prices were bid up into the sky?  How am I ever going to get a good return from that?  (Ask yourself what return the Japanese got for their high-profile real estate purchases of the eighties and nineties).

But this is exactly what Arizona has done.  They picked the sector to subsidize and fight for corporate relocations - biotech - that every other state and municipality in the US has also chosen as their highest priority.  They even admit this in their report:

Battelle representatives said Arizona's challenge is that bioscience is
an ultracompetitive field, and states across the nation are pursuing
initiatives to bring the good-paying jobs that the sector promises.

In business school, I would get an "F" for this.  Choosing to subsidize biotech means that for every potential company relocation, Arizona and Phoenix are up against ten other cities and states also throwing subsidy and tax abatement packages out there.  Stupid.

Circle Jerk

It just symbolized for me how stupid all this is when I saw that the big payoff of this state government spending was to attract ... federal government spending:

National Institutes of Health grants issued to Arizona-based
institutions jumped 30 percent from 2002 through 2005. That funding
growth outpaced the nation's top 10 research states.

No Linkage of "Investment" to "Returns"

When private firms make investments, they carefully track the returns from this investment to see if it was worth it.  However, when government makes what it calls "investments", this is impossible.  The study claims that biotech jobs in Arizona have risen faster than the national average, but shows no link to the government spending that had taken place.  Probably because there was little relation.  The fact is that just about any job sector you can name in Phoenix -- from electronics to garbage sorting -- has grown faster than the national average because Phoenix as a whole has grown faster than the national average.  Taking credit for the rising tide is a classic politician behavior.  Companies and individuals are moving to Phoenix because they like the climate and relatively low taxes and regulation, of which the latter are only hurt by corporate welfare programs for favored few.

Prisoner's Dilemma

I have written before how much the government subsidization of corporate relocations looks like a prisoner's dilemma game. 

I hope you can see the parallel to subsidizing business relocations
(replace prisoner with "governor" and confess with "subsidize").  In a
libertarian world where politicians all just say no to subsidizing
businesses, then businesses would end up reasonably evenly distributed
across the country (due to labor markets, distribution requirements,
etc.) and taxpayers would not be paying any subsidies.  However,
because politicians fear that their community will lose if they don't
play the subsidy game like everyone else (the equivalent of staying
silent while your partner is ratting you out in prison) what we end up
with is still having businesses reasonably evenly distributed across
the country, but with massive subsidies in place.

The practice of state governments spending massive amounts of tax money to move a few jobs over the state line, and then having other state governments spend even more money to move the jobs back, is a war of escalation that leaves everyone worse off except a few players with political pull or who work in a fair-haired favored industry.

It's all About the Sex Appeal

Here is the bottom line:  Programs like this are for politicians.
Period.  They benefit politicians by giving them things they can say in
elections, like "I brought biotech jobs to Arizona,"  which sounds
better than "I brought garbage-sorting jobs to Arizona."  This in
effect answers the equal protection question of "why biotech?"  The
answer is that biotech is currently sexy, and politicians in their focus
groups have found that tbiotech resonates the best among voters.  All of
which makes for a really crappy approach to "investing."

I am not a big fan of Arizona's John McCain.  I beyond my problems with the McCain-Feingold disaster, I have always suspected him of being a big-government populist, willing to intervene on any issue in the boardroom or the bedroom.  Matt Welch has taken the time to try to decode McCain, and comes to a similar conclusion.

I have been thinking about this previous post on trade and wanted to improve my answer to Jon Talton, our free-markets-hating business columnist in the Arizona Republic.  In his recent column advocating that we finally give up on all this free trade stuff, he said:

Americans were assured that new trade accords and China's membership in
the World Trade Organization would mean better living standards for
American workers. That's because China and other countries supposedly
would buy American exports.

I thought my answer was OK, but I want to take another shot at it, because I hear the argument all the time that "trade only benefits the US if other countries buy our exports."  This is wrong, but this misconception drives many people's thinking on trade.

If we are importing more from other countries but they are not "buying more of our exports," such that we have a large trade deficit, there are two possibilities to explain this:

• The definition of exports is too narrow
• Someone is throwing away value by building up a big pile of US dollars

The first is the most likely explanation.  A dollar is valueless in China, and the UK, and France except to the extent someone thinks they can eventually use it to buy something in the US.  Dollars that aren't or can't be used to buy dollar-denominated assets of some sort have no value.  The money a Chinese exporter accepts from Wal-mart is only valuable if they can recycle it and buy something in the US with it (or trade the dollars to someone else in China who wants to buy something in the US). 

So the dollars we send overseas for imports are going to come back.  But the  reason our trade accounts are out of balance is that the trade deficit numbers they quote on TV define our exports narrowly.  In short, "exports" as commonly measured don't include all the things we sell to foreigners for dollars.

One example of this is if a Chinese company takes the $10 million dollars it earns from exporting to the US and then invests $10 million in US materials to build a factory in the US.  That sounds OK, right?  That seems to be in balance.  But in the way we calculate the trade deficit, that would show as a $10 million trade deficit, because goods (and services) that foreigners buy in the US and consume in the US (rather than back in their home countries) are not considered an "export."  In fact, I would consider this "better" than an export, since both the dollars and the goods stay in the US.  But to trade deficit hawks, this is worse, mainly because their measurement is flawed.

A second example is if a Chinese company take the $10 million dollars it earns from exporting to the US and invests the money in US mortgage bonds.  Again, this would show as a trade deficit, but the US economy benefits from lower interest rates.  In this case, we are again selling foreigners a product, in this case wealth protection, which the US is very good at since we have a more stable economy and stronger rule of law than any other country in the world.  And again, the way we measure "export" does not encompass this product, since our trade measurement has a strong manufacturing bias that does not match the more diverse nature of our economy today.  (For those that lament forefingers helping to fund the enormous government debt, I share your pain, but that is a government spending problem and not a trade problem).

But what if the foreigners are totally perverse.  What if they ignore their own best interests and refuse to buy our exports and just sit on the dollars they get from trade without recycling them in any way to the US?  What if they do this even if by doing so, they would be throwing away billions, even trillions of dollars in value?  As absurd as this sounds, this is exactly the concern Talton and other trade-skeptics raise.

Well, the US in this case would STILL be better off.  First, the US would be getting whatever goods we are buying overseas cheaper or better (or else people would not be buying them).  This would reduce the costs of inputs to other products, and increase money consumers have to spend on other things.  The labor that would have gone into making these products domestically would be redeployed to making other things, increasing our net wealth. 

By the way, it is this last sentence I think Talton and his peers would not accept.  They tend to view employment as zero-sum, ie there are a fixed number of jobs in the world, and if we import, that creates jobs overseas which must reduce jobs in the US.  But labor markets have never worked that way.  As I wrote before:

I have taken on this zero-sum mentality before,
but it is particularly wrong-headed in this case.  Historically, the
argument makes no sense.  For example, the automation of the farm
sector wiped out 80 or 90% of the farm jobs in the US over the last
century.  By the zero-summers logic, we should be impoverished.
Instead, these people were redeployed to manufacturing and service jobs
that create far more wealth than the old 19th century farm employment.
But while people can sort of accept this historically, they can never
accept this in real-time.  But the fact is that when we lose, say, a
textile job to foreign competition, we not only gain because everyone
pays less for textiles and thus has more money to spend on other
things, but that worker gets redeployed over time to higher-value
functions.  Look at the old textile belt in North Carolina - what's
there now?  Electronics and Bio-tech.

By the way, the other thing that would occur if foreigners just buried dollars in the sand without recycling them is that the value of the dollar would rise to levels higher than it would be at if these countries recycled their dollars, thus further lowering the price of inputs for the US.  Talton laments this very effect:

Now, the populists will get a chance to make their arguments,
especially over what the American response should be to Chinese
currency manipulation, tariffs and subsidized exports.

The currency manipulation and subsidized exports have one thing in common:  They are both ways that the Chinese destroy value for their own citizens in order to lower prices for American consumers.  And Talton claims that the populist argument should be to end these practices?  Why?  I think its great that the Chinese want to hold billions in dollars just to keep the dollar high and prices low in the US.  I think its great that their taxpayers want to subsidize lower prices in the US.   I can understand why a Chinese citizen might want this to stop, but why should we, who are the beneficiaries?

Update: By the way, another common misconception is that a trade deficit implies someone is building up a debt.  This is not (not not not) at all true.  We can run a trade deficit indefinitely without building up a debt.  Yes, foreigners are currently investing some of their trade profits in US government bonds necessitated by the federal government's deficit spending, but the two are only weakly related - a trade deficit does not cause government debt.  A great way to see if a columnist has any idea what they are talking about is to see if they confuse the federal budget deficit with the trade deficit.  It is almost funny how often I see this confusion appears in print.  Anyway, this confusion is why people like Talton call the trade deficit "unsustainable".  See my posts on why the trade deficit is not a debt (and here).

Apparently, USAirways (the recently merged product of America West and US Air) has made a bid for buying Delta out of bankruptcy.  The bid is around $4 billion in cash and $4 billion in USAirways stock.  Which got me thinking about airline mergers in general.

Companies can be thought of as having tangible assets (trucks, airplanes, factories) and intangible assets (reputation, employees, brand names, contracts).  Most companies are worth far more than the book value of their tangible assets.  Most of Microsoft's value, for example, is in it's products, its brand, its franchise, its contracts, its people, etc., not in hardware or buildings.  As a result, most acquisitions are completed at prices far above the book value of the assets of the purchased company.  The difference is called "goodwill" by accountants and "enterprise value" by economists.

But enterprise value is a problem in airline mergers.  Most investors expect to pay and get paid a premium over asset values in a merger.  But I am not sure there should be any such premium nowadays for airlines, because I fear that the typical airline's "goodwill", or the value of their intangible assets, may be negative.

Take the example of Delta.  Unlike scrappy competitors like Southwest and JetBlue, Delta has a lot of baggage (so to speak).  First and foremost, they have terrible legacy union contracts that mean that pay all of their employees much more money than do startup airlines and they are much more constrained by work rules in improving productivity.  They have huge and building under-funded retirement and medical accounts.  They have legacy contracts that may suck, and they often have hodge-podge mixed fleets that are hard to maintain.  All of this tends to add up to a negative effect on value.

The one positive intangible companies like Delta have is their brand value, and I would argue that most of that is tied up in their frequent flier programs[** Update Below].  Without these programs, most frequent fliers have demonstrated that they would switch airlines for trivial improvements in fares.  This value in the frequent flier programs was demonstrated in the America West merger (among others), when Juniper Bank contributed $455 million (!) to the merger for the right to issue the visa card attached to the program.  Wow.

Given this problem of negative enterprise value, it is not surprising that savvy upstarts like JetBlue and Southwest before it have not grown by acquiring other companies.  Both are willing to take advantage of bankrupt competitors to grow, but they only have bought assets (like planes and gates) rather than whole enterprises, so they don't inherit legacy contract or union issues.  When the companies who are making money do things one way, and the companies who find themselves in bankruptcy court every five years do it another way, the difference probably matters.

Which brings me to the title of the post and agency costs.  It is really, really uncertain whether buying Delta is good for the USAirways shareholders.  Since buying airline equities has always been a losing proposition over the long haul, the deal only makes sense if 1)  They are getting a screaming deal, either because of Delta's bankruptcy or because they are doing the deal in just the right part of the business cycle; or 2) They can really harvest synergies, which in this case would have to include shutting down entire hubs, such as Charlotte in favor of Atlanta or Cincinnati in favor of Pittsburgh.   While I can't speak to the latter with any facts, you have a better chance betting Arizona will win the Superbowl than betting any acquisition hits its promised synergy values.

But if the value of the acquisition is unclear for shareholders, there is one group that almost certainly benefits:  USAirways management.  Management, even if shareholders don't get a great deal, will benefit in both monetary and non-monetary (e.g. status) ways from running an airline three or four times as large as the current enterprise.  This mis-match in incentives between hired management and shareholders is called agency costs, and is something every board should be more cognizant of when approving acquisitions.

**Update:  A rant on the ethics of frequent flier programs

Tonight, it appears that AZ voters will pass Prop 202 to raise recreation use fees in Arizona.  Oh, you say that's not what Prop 202 was for?  It was minimum wage?  That's right.  Prop 202 raises the minimum wage in AZ by 31%. 

I have written about the minimum wage many times.  For a variety of reasons, many seasonal recreation workers in AZ, and in fact in the US, are retired folks who work for minimum wage and a camp site to take care of a facility.  They love the job, and do great work, while filling seasonal jobs that younger folks trying to raise a family can't really take on.  When you take all wage related costs -- wages, payroll taxes, unemployment insurances, workers comp, liability insurance, etc. -- wages drive about 2/3 of recreation costs.  That means that a 31% increase in wages equates to a 20% increase in recreation use fees for camping, boating, day use, etc.

What, you say?  That's not what we meant!  We consumers aren't supposed to pay this extra, you business guys are!  Well, my profit margin is about 5% of revenues, which is a pathetically low number for a service business.  Basically, I do this for fun -- I could probably make a better return investing in government bonds.  So, to avoid bankruptcy, wage increases get passed right through to use fees.  And since the law requires that the minimum wage be increased every year, it means that use fees will have to go up every year (for comparison, we have been able to hold many use fees flat for 3-4 years at a time, despite fuel and other costs).

Sorry.  My employees were happy to work for $5.15 an hour.  They did not ask for a raise.  In fact, I have a waiting list of people who want jobs at $5.15.  It was the voters of Arizona who decided that my employees could no longer legally accept this amount for their labor.  And, unfortunately, it is the voters of Arizona who will have to pay for this raise my employees did not even ask for.

There are those of a libertarian bent who want to believe that the current bitch-slapping that Congressional Republicans are being handed right at this moment portends well for libertarians:  I beg to differ.  Don't get me wrong, the Republicans deserve what they get.  But this election should not be taken as a sign that the electorate is going all libertarian.  Forget exit polls and what the news says about why people are voting the way they are -- that stuff is always garbage.  Look past the people races and look to the ballot initiatives.

All over America, I don't think voters are punishing Congress for wielding too much power over their lives.  Because when the voters themselves are being offered legislative power via propositions to use the full coercive power of government to compel their neighbors to do the majority's bidding, they are jumping on the statist bandwagon gleefully.  Minimum wage hikes, smoking bans, new regulations, bans on gay marriage, restrictions on immigrants; heck, we even have ballot initiatives with micro-regulations for animal cage sizes.   They are all passing in Arizona and across the country. 

Currently 77% of Arizonans have voted to make Arizona prisons mini-Gitmo's for illegal immigrants, denying them bail for any crime.  75% want to make sure no Spanish is spoken in the statehouse.  66% want to interfere in employer/employee wage negotiations.  55% want to give bar owners no choice in whether they allow smoking in their own private establishment.

Note that there is no consistent theme of conservatism or liberalism in these issues.   The first two might be seen as "conservative" issues and the second two as "liberal" issues.  But the same 2/3 are voting for each.  This is not a victory for the left or the right, but for big government populism.  The voters are getting a taste of bending their fellow citizens to their whims via the government, and they seem to like it.

Update: I am trying not to get mad, but 75% - 3/4 of the people in this state - are voting to not allow illegal immigrants to collect punitive damage awards.  I'm sorry, I understand that people are frustrated with the immigration topic, but there are certain things that strike me as basic under any notion of equal protection, that should apply irregardless of citizenship status.  Protections we should offer to any human being that happens to be in our borders.  And the ability to seek redress for damages in court should be one of them.

In addition, 57% are currently supporting the initiative to ban probation for meth users, so that even minor meth possession charges will lead to a jail term.  This means that the hugely enlightened and highly successful policy of filling up jails with marijuana users is going to be emulated and applied to meth use.

On the positive side, so far the gay marriage amendment is not passing, and the proposition to put limits on Kelo-type eminent domain takings looks like it will pass.

There just seems to be a huge philosophical muddle behind the voting here.  The electorate votes to limit kelo-type government takings and to require compensation in zoning cases where private land values are reduced, but at the same time votes strongly to ban smoking in bars and to raise the minimum wage, both of which are effectively government actions that takes value away arbitrarily from certain private individuals and businesses.

For years I have lamented tthat the average American has no philosophy -- he or she only has a hodge-podge of inconsistent political views stitched together from his/her parents, from peer pressure of their social group, and from random encounters with the media.  Never have I felt this as strongly as I do tonight.

Arizona has pages of ballot initiatives (or propositions) up for vote on the ballot tomorrow.  Here is my approach to voting on these initiatives:

• My default is a no vote on everything.  After all, most of these initiatives are regulations and tax increases that even the legislature, not shy about passing either, has not wanted to take on.   Having a default vote is very helpful - if I am unsure, if there is doubt, if I don't fully understand the issue, then it gets a "no".  Like "not guilty" in a criminal trial, its my default answer.
• I then look for tax cuts and regulation relief.  There tends to be little of this.  We have one ballot initiative that looks like it will help keep property taxes under control, and one that does a nice job circumscribing eminent domain takings as well as regulating "soft" takings (changes to zoning or land use that make a property less valuable without compensation).  On these I will switch my vote to "yes".
• I then look at bond issues.  A growing city like Phoenix needs facility expansions, and bond issues are a reasonable way to do so.  However, a lot of crap gets loaded in these.  Typically they will say the bond issue is "for schools" to get everyone to vote for it and then load a lot of garbage in it.  I believe California has some of this going on.  We have no bond issues up for vote in my district but we do have a proposition to increase the size limit of future bond issuances.  I am still thinking about this one, but if I can't get excited about it, it gets the default vote - "no".
• I will then consider procedural changes in government, but with a heavy bias towards "no" due to the laws of unintended consequences.  I don't understand the procedural changes being suggested in two initiatives on public land use so I will vote no on both.  I will definitely vote no on the proposal to pay people to vote with a lotter ticket.  The proposal to effectively switch Arizona to all absentee balloting with virtually no polls is intriguing, but seems fraught with possibilities for unintended consequences (or secretly intended consequences I don't understand) so I will vote no there too.

CBS's venerable television newsmagazine 60
Minutes on Sunday will focus on Arizona Republican Rep. Jeff
Flake's battle against "earmarks" and congressional overspending and
government waste.

CBS News veteran Morley Safer is the correspondent on the piece, which is
expected to include interviews with Flake and his uncle, state Sen. Jake
Flake, R-Snowflake, from August.

The Flake segment is scheduled to lead the program, which airs locally at 6
p.m. Sunday on KPHO-TV (Channel 5).

For a summary of the segment, which will run on Sunday, November
5th, please click on:

 

http://www.cbsnews.com/stories/2006/11/02/60minutes/main2145860.shtml

Update: A bit of the video is here in the Buried in the Fine Print section about 3-4 videos down.  Go, Jeff, go.

It would be nice to think that we are this numerous:

These federal intrusions are especially scorned by
independent voters in the Western states where Republicans have been
losing ground, like Colorado, Nevada, Arizona and Montana. Western
Democrats have been siphoning off libertarian voters by moderating
their liberal views on issues like gun control, but Republicans have
been driving libertarians away with their wars on vice and their
jeremiads against gay marriage (and their attempt to regulate that from
Washington, too).

Libertarian voters tend to get ignored by political strategists
because they're not easy to categorize or organize. They don't
congregate in churches or union halls; they don't unite to push
political agendas. Many don't even call themselves libertarians,
although they qualify because of their social liberalism and economic
conservatism: they want the government out of their bedrooms as well as
their wallets.

They distrust moral busybodies of both parties, and they may well be
the most important bloc of swing voters this election, as David Boaz
and David Kirby conclude in a new study for the Cato Institute.
Analyzing a variety of voter surveys, they estimate that libertarians
make up about 15 percent of voters "” a bloc roughly comparable in size
to liberals and to conservative Christians, and far bigger than blocs
like Nascar dads or soccer moms.

I am not sure I believe it - many of the people who claim to be small government turn into statist technocrats when the right issue comes up.

I will say that the Internet and blogging in particular has really brought many libertarians to the surface.  I wrote about the phenomena of libertarians and blogging here.

The single post from way back that I still get the most Google hits from (and the most nasty email, I might add) was my post on the myth that public schools teachers are underpaid.  This was a follow-on post to my lengthy post fisking the NEA's school improvement plans and here too.  The premise in all these posts was that 1) Public schools actually spent more per pupil than private schools that do a better job and 2) Teachers, when you adjust their total hours to match other workers who don't get summers off, make a salary very competitive to other professionals, even before their hefty government benefits package.

The Goldwater Institute has just completed a study of Arizona private schools, and has come to many of the same conclusions.  The study's author, Andrew Coulson, summarizes the findings:

In a study released yesterday
by the Goldwater Institute, I analyze the results of their most recent
private school survey. Among the other fascinating findings is that
public schools spend one-and-a-half times as much per pupil as do
private schools. Or, looked at the other way, private schools spend a
third less than public schools.

Some other fascinating tidbits:

Teachers make up 72 percent of on-site staff in Arizona's independent education sector, but less than half
of on-site staff in the public sector. In order to match the
independent sector's emphasis on teachers over non-teaching staff,
Arizona public schools would have to hire roughly 25,000 more teachers
and dismiss 21,210 non-teaching employees.

When teachers' 9-month salaries are annualized to make them
comparable to the 12-month salaries of most other fields, Arizona
independent school teachers earned the equivalent of $36,456 in 2004 "”
about $2,000 less than reporters and correspondents. The
12-month-equivalent salary of the state's public school teachers was
around $60,000, which is more than nuclear technicians,
epidemiologists, detectives, and broadcast news analysts. It's also
about 50 percent more than reporters or private school teachers earn.

My kids go to an absolutely fabulous private school here in Phoenix.  It is secular and (gasp) actually runs for-profit, so it has no endowments or sources of grants or charitable funds.  In exchange for a great education that far outstrips the quality of even the best local schools, it charges a tuition substantially less than the Phoenix-area per-pupil public school spending (and it offers a 20% discount for each child over one).  If you are considering a move to the area, email me and I will give you more detail.

More here on the virtues of school choice.  This is a sort of related post on the barriers to starting a private school.

I am done with the Cardinals until they get an offensive line. I have written many times about the sad, failing strategy of drafting high-profile position players (particularly wide receivers) but paying no attention to the offensive line.  The Cardinals have one of the best receiving corps in the nation, have what looks to be a great young quarterback, has a top-notch running back, but did NOTHING over the winter to shore up what last year was a crappy O-line.  This is despite being $10 million under the cap!

And you saw it last night.  Commentators have criticized the coaches for getting too conservative in the second half of last night's debacle, and certainly that is true.  But a good team with a back like Edgerin James should be able to close out a game in the fourth quarter by pounding the ball on the ground.  And the Cardinals could not, with James averaging less than 1 yard per carry after the opening drive in the first quarter.

I give up.  I am tired of getting suckered onto the bandwagon.  Until the Bidwells crack open the wallet and focus some cap money on the O-line, I am back to rooting for the Broncos.

Update:  Greg Easterbrook piles on:

When my two football-crazed boys got up early this morning I said,
"Guys, Arizona was ahead by 20 and had the ball on the last play of the
third quarter." Immediately both said, "And the Cardinals lost." Not
only did Arizona blow a late 20-point lead at home in front of a
national television audience; the Bears committed six turnovers and the Cards still managed to lose. Arizona held Chicago to nine first downs and was plus-four
in turnovers, yet managed to lose. In the closing seconds, Arizona had
last year's Pro Bowl kicker lined up for a 41-yarder to win, and
trigger what would surely have been wild civic celebration, and still
lost. What's a stronger expression than "pitiful"? We must now twist an
old line and proclaim: Whom the football gods would destroy, they first
make Arizona Cardinals.

I haven't really commented much on the local brouhaha over the Arizona 9/11 Memorial.  In short, critics argue the memorial does little to honor the actual victims, and spends too much time with irrelevant trivia and "America asked for it" messages.  The whole kerfuffle just reinforces my point that it takes time to gain a historical perspective on anything, and rushing to change building names or build monuments or put people on currency can often lead to decisions that are embarrassing given a bit more time for historical perspective to develop.

That being said, I thought this was a pretty good investigative report on the influences behind the memorial design (you may or may not be non-plussed by the alt-weekly writing style).  Of course, since it is impossible to get any real reporting out of our main paper, the story comes from our alternative free weekly, which runs rings around the Republic in terms of investigative reporting.

For lack of a better term, I call myself a libertarian with a small-l.  I do not, despite this term, feel much allegiance to the formal Libertarian Party.  I tend to like their platforms more than those of the major parties, but many of their candidates seem unserious to me.

Today I got my first press release from the local LP candidate for Governor.  And what is it about?  The LP candidate jumps into the fray on the Arizona 9/11 Memorial:

Libertarian nominee for Governor, Barry Hess weighs in on the only
thing Democrat Janet Napolitano and Republican Len Munsil can find to
disagree about - the great Arizona 9-11 memorial debate.

When asked for his input, Mr. Hess replied, "It doesn't surprise me
that this is all they can come up with to distinguish themselves as a
reason to vote for them.  The problem is that neither one of them ever
seems to posses the ability to go to the root of the issue.  The very
first thing they should have determined is, what is it?  Is it a
tribute to the innocent lives lost on 9-11, or is it a memorial of the
event?
                
If it is a tribute to the innocent
dead, then the politically-charged slogans are clearly misplaced and
should be removed.  If it is a monument memorializing a tragic event
that is surrounded by a multitude of dubious official explanations of
what actually happened when innocent lives were caught up in something
bigger than them and lost in a politically-induced inevitability, then
the outrage expressed in the slogans is well, and rightfully placed.
                
Why didn't the Republican or the Democrat first establish what it is
supposed to be?  Because they are both just using it as a soapbox, and
it's shameful they would each use it in an attempt to garner votes.
The public really should reflect on the fact that if these are the best
candidates the Republican & Democrat parties could come up with,
maybe neither is their best option for Governor."

When I read the first line, I thought Mr. Hess was going to rightly criticize the major party candidates for focusing on trivia.  But no, he jumps right in himself.  I'm not a big fan of how the memorial turned out, but while the memorial was officially sanctioned by the governor, it was at least all privately funded.  We seem to have many other issues in a state where the government is building the new Berlin Wall that I would think a good libertarian would be more concerned about.

Here would have been my response:

"While the major party candidates focus all their attention on the content of a single
piece of privately-funded sculpture in downtown Phoenix, Warren Meyer criticized both
candidates for their support of a government-funded half-billion dollar monument to
mediocre football and corporate welfare out in Glendale."

Postscript:  By the way, this government-funded facility is used for its core purpose just 11 days out of the year  (Fiesta Bowl, 2 pre-season games, 8 regular season games) which gives it an occupancy  of 3%.  Supporters will argue that it is used for other events (e.g. a home and garden show) but these events could be held at existing facilities costing 1/10 the amount of Glendale Stadium.  To somehow take credit for these other events is disingenuous, because their move to Glendale likely cannibalizes the revenue of some other government facility, like the convention center.  Most of the cost of the stadium -- visitor amenities, locker rooms, sliding roof, sliding grass floor, seats, etc -- are for football only.  More about why I hate the public funding of stadiums here.

Arizona has a ballot initiative here in November to raise the minimum wage to $6.75.  Perhaps more worrisome, the law has been structured to raise the rate every year based on some cost of living increase.  (As an aside - these cost of living escalators in government-mandated wage rates are insanely recursive.  The government raises wages, which increases prices, which leads to a further increase of the statutory rate).  An Arizona group opposed to the initiative has put out a nice Word document with the proposed laws language annotated with facts and refutations.

I will not be coy and pretend that I don't have an interest in this question.  The campgrounds we operate on public lands were run by volunteers in the past, until the courts decided that private companies were not legally allowed to use volunteers.  Most of our camp hosts, who tend to be in their 70's or older (we have many employees in their eighties and a few in their nineties!) get paid minimum wage plus a camp site in a nice park for the summer (the latter is what they really want).  Unlike private campgrounds that are built to be efficient to operate, the public campgrounds we operate tend to be small and labor-intensive.

We make about a 5% profit on sales in the camping business (yes, I know that is pathetically low).  Labor is 60-70% of our costs, if you include costs that are directly tied to wages like payroll taxes and workers comp. premiums.  This law would raise the minimum wage by 31%.  You do the math.  In a stroke, this ballot initiative would raise our costs by 20% (.31 x .65) in a business where costs are 95% of revenues.  Something has to give.  I am not going to work the hours I work and run the business for charity.  A 5% margin is almost there already.  We are therefore planning for two different contingencies.

1. Camping fees will have to rise by approximately 20%.  This means that a camping fee of $16 will go up by $3.  I will not make any more money, this will all be a pass-through to my employees, most of whom really wanted to volunteer in the first place.  One could rename this ballot initiative the "vote yourself a camping fee increase" initiative.  A few years ago, an attempt to raise lodging taxes on camping by a few percent met with howls of opposition.  But in effect this is ballot initiative in in effect adding a 20% tax to camping fees.
2. My labor model of hiring retired people may well have to change.  There is a real trade-off in hiring retired folks to maintain campgrounds.  On the plus side, we get a lot of honest and responsible people who have the time and the flexibility in their life to pick up stakes and go live in a campground all summer.  The down side, of course, someone who is 75, or 85, is not going to work as fast or as productively as younger folks.  My workers also tend to get injured more easily (my insurance company freaks every time it sees my employee list with dates of birth) which costs a lot in workes comp. premiums.

   When presented with the choice in the current market of hiring a retired person at $5.15 an hour or a younger, faster worker at $7.50 an hour, I have been happy to hire retired people.  This model has worked great for us.  Unfortunately, I must revisit this business model when my choice is between hiring a faster worker at $7.50 and a slower worker at $6.75 (and rising).  Already in high minimum wage states like CA, OR, and WA we have begun shifting away from hiring as many retired people.  I also hire a lot fewer people, having invested in automated fee collection in high labor cost areas.  (Think about this, at least for a few seconds, before all of you start sending me the inevitable emails I get for being a heartless brute for paying anyone minimum wage).

By the way, the federal government gets around this problem for the campgrounds it operates itself.   How?  Why, it exempts itself from these laws.  Most federal campgrounds employ retired persons as volunteers.  They don't pay campground workers minimum wage, they pay them ZERO.

I wrote a much longer post on minimum wage laws here.  Minimum wage laws are becoming hip in traditionally red-state border areas as a tool to keep immigrants from working.

Update:  I actually underestimated the amount of my costs directly tied to wages, and so I have updated some of the numbers to be more realistic.

A while back I wrote that the State of Arizona was continuing to maintain, year in and year out, an expensive process demanding overtime and extra work just to avoid "giving back" a one-time budget gain they took several years ago.  It appears the feds are playing the same game:

The bureaucratic brainstorm was straightforward "”
simple-minded is, perhaps, a more appropriate description "” don't pay
doctors, hospitals and their army of auxiliaries tending to indisposed
old folks and the afflicted disabled for their labors in the last nine
days of the current fiscal year. Instead, send them a check for what
you owe them, sometime after the first of October, the start of the
government's fiscal '07. In essence, those doctors, hospitals et al.
are making an involuntary loan of nine days' pay without interest.

 

That way, point out the gleeful budgeteers and Medicare pooh-bahs,
all of whom presumably are glowing with health, Uncle Sam's Medicare
tab this fading fiscal year will be $5.2 billion less than it otherwise
would have been. Or at least would seem to be $5.2 billion less "” in
Washington, as we all know, appearance and reality are not invariably
the same phenomena.

My only objection to Drum's post is his implication that this is a uniquely Bush-White-House maneuver.  I get tired of partisans on both sides of the aisle that try to blame crap like this on the other party.  This kind of thing is inherent in politics and government.  The Arizona example, which is entirely parallel and perhaps even worse given the year-after-year costs, was an invention of a Democratic governor.

About a year ago, after years of driving cleanly, I had a spate of 3-4 traffic tickets, mostly photo radar (in the same dang spot!) plus this silly one.  I received a warning that further tickets in the next year would lead to revocation of my license for a year.  Gulp.  So I have been driving like a grandmother, until yesterday when I got nailed for 45 in a 30, while arguing with my kids in the back seat. 

Now I will have to see if there is any way to mitigate or reduce the threatened punishment.  A one year's revocation, which by the way is longer than they give first time DUI's in this state, is a pretty harsh and financially burdensome penalty.  Especially given my small business requires a lot of driving to our remote locations and I contribute a lot to driving our kids.  I'll let you know how it goes, but if anyone is experienced with these situations in Arizona, feel free to comment or email.

I was fooling around with a great web page run by the Sunlight Foundation linking earmarks from a recent Health and Human Services bill to Google maps.  Here are some of the earmarks in the Phoenix area:

1. $ 400,000 -- Midwestern University for a rural postgraduate educational program at Sierra Vista Regional Medical Center
2. $ 150,000 -- St. Joseph's Hospital for facilities and equipment for its mobile maternity outreach program
3. $ 750,000 -- Translational Genomics Research Institute for facilities and equipment
4. $ 250,000 --  Arizona State University Institute of Civil Rights, for dropout prevention and other education projects
5. $ 125,000 --  Mesa Community College for nursing recertification curriculum
6. $ 175,000 --  Mesa Community College for the Enfermeras En Escalera program
7. $ 200,000 -- Marc Center for job training for adults with disabilities
8. $ 500,000 -- Scottsdale Healthcare for an electronic medical records system
9. $ 100,000 -- Arizona Dental Foundation to provide dental services to low-income residents of Arizona

Note that this is just from one narrowly focused bill and for one single metropolitan area.  For this one post, I will not be a libertarian and wonder why the government is spending money on some of this crap.  Instead, for one post, I will be a good little technocrat and assume that the government should be doing all these things and criticize the process.

If I were a technocrat, I would argue that Congress already funds an ENORMOUS beauracracy to route federal money to theoretically the most productive spots.  I mean, that's the whole technocratic argument for all this government spending, isn't it?  That the government run by experts in the field can top-down allocate resources better than some bottom up market process?

Ideally, in any budgeting process, you look at your goals for a pool of money - say to cure breast cancer or to provide worker retraining, and you rank projects and allocations against this goal.  I believe this to be an impossible task for a variety of reasons, some of which are described here.  But even if you buy into this theory of technocratic fascism, you STILL have to be appalled by these earmarks.  Because each and every one are an override of any kind of prioritization and thoughtfullness that might exist in the budgeting process.

Take #9.  So the government has a goal of providing dental services to low-income people.  Fine.  Then shouldn't it take its dental services budget and allocate it on the best cost per patient served basis?  Does the Arizona Dental Foundation fit into this picture?  I bet no one in Congress knows.  In fact, I bet it DOESN'T fit this efficient allocation of funds criteria, because otherwise someone in Congress wouldn't have overrrided the funding process to push $100,000 their way in an earmark.  And even if this is a non-profit, shouldn't this kind of thing be bid on -- say ask for proposals of who can do the most with $100,000?

Some of these others are pretty obscure, and say something in and of themselves about the reach of the federal government these days.  But take #3.  Is the Translational Genomics Research Institute the best place to spend 3/4 million to get the most bang for our health research dollars?  No one probably knows, but what I can tell you is that it is the darling of our local political establishment (just read its history, all about political namedropping, new facilities, and whoring for taxpayer funds without mention of any actual research).  It has political figures such as our current governor on the board, so you might be able to guess how they got their earmark.

Or look at #8.  Scottsdale Healthcare is a private company, though a not-for-profit.  It is a large provider of private, paid medical services in our area.  It, out of all of its competitors in town, both non-profits and for-profits, was chosen by Congress to get its medical records system upgraded by the US taxpayers, why?

Yet another company is falling into what I call the franchise trap, as Krispy Kreme's woes continue, including closure of its Arizona stores.  Just about 5 years ago, I remember when they first showed up here in Phoenix - there were long lines and police directing traffic around the stores.  Now, they're dead.  And the corporate parent is struggling.

If memory serves, Boston Chicken (now Boston Market) and Jiffy Lube both had their corporate parents go into bankruptcy at the back end of their wild growth phases.  This is what I mean by the franchise trap:  Franchises generally start out as a single location that does well.  Wanting to grow quickly, and lacking the capital to build their own stores, they adopt a franchise model for growth.  Soon, wild growth may ensue if their concept is good, and they discover that selling franchises is more profitable than selling whatever they sold in the store.  Once the growth phase ends, though, they often hit an iceberg.  Inevitably, they find that many of their franchisees either can't cut the mustard or chose poor locations and go bankrupt.  In addition, they must make the transition back from growing by selling franchises to growing by incrementally improving the core business.  Many can't make this transition back, corporate bankruptcy ensues, and someone who is an operator rather than a franchise promoter comes in and cleans up the house.

I thought the city of Washington DC had declared a "Crime emergency" because there was too much crime.  Apparently not, since they have created a whole new class of criminals:  16-year-olds who are ... shudder ... out and about after 10PM.

D.C. Police Chief Charles H. Ramsey said yesterday that the city had to
set the new 10 p.m. curfew for youths 16 and younger because of
"irresponsible" parents who don't control their children.

"You shouldn't need a curfew if you've got parents who are
responsible," Ramsey said on Washington Post Radio. "But unfortunately
we've got some parents here that are totally irresponsible. Their idea
of raising a kid is throwing a kid out of the house and letting them
straggle back in at 2 o' clock in the morning."

Hat tip to Reason's Hit and Run, which had this comment:

It's not that city officials want to play parent to every kid in the district. It's just that, gosh, turns out law enforcement professionals are better parents.

I hate to think what ideas this will give our local stormtrooper Joe Arpaio, the Sheriff with the largest PR budget in the nation. 

Props by the way to Phoenix New Times reporter John Dougherty, whose longstanding reporting on Sheriff Joe is reminiscent of the tough, confrontational local reporting of old.  Of course, there's no room for that in the milquetoast pander-to-the-local-pols reality of big-city newspapers today, so Dougherty is relegated to the local alternative paper (which may not be fair -- I don't know Mr. Dougherty -- he may prefer to be where he is).   Sheriff Joe is popular here in Phoenix, so the Arizona Republic (the big paper here) panders to him rather than risk confronting a popular figure.  The fact that one of Sheriff Joe's family helps run the Arizona Republic's editorial page may also have something to do with it.